Insurance sector is in the limelight these days with mergers and acquisitions becoming the talk of the town. A few weeks ago, Rosewood Insurance Group of Switzerland expressed its intentions to acquire a controlling stake in TPL Direct Insurance and now UBL Insurers has caught the eyeballs of Bestway Cement.
Reportedly, Bestway Cement is intending to acquire a 12.23 percent stake in UBL Insurers which is currently retained by Abu Dhabi Group. As of December 2013, Bestway Holdings and United Bank Limited together held a controlling share of 85.6 percent in UBL Insurers, while 12.23 percent is in the hands of Abu Dhabi Group when the remaining is with local individuals.
Bestway Cement has a prolonged track record of making affluent investments. To recall, the company acquired Mustehkam Cement in 2005, which was then merged into Bestway in 2013. This year, the company announced its successful acquisition of Lafarge Cement. Its interesting to note that previous acquisitions were consistent with Bestway Cement's existing line of business, while investment in UBL Insurers will be the first of its kind for the company. However, the company's management seems convinced of its standing once the acquisition is successfully pulled off.
In a conversation with BR Research, Kaleem Ashraf, Company Secretary at Bestway Cement said: "With Abu Dhabi group walking out, the entire holding will land in the hands of Bestway Holding and United Bank Limited. Considering that both these companies are part of a single group, its standing will become stronger. Moreover, from UBL Insurers point of view, being managed by a single group will prove to be even better than being in the hands of an outsider."
Bestway Cement is offering a target price of Rs6 per share, which is in effect the book value per share of UBL Insurers. That said Bestway Cement will have to incur an outflow of Rs84 million in exchange for 14 million shares of UBL Insurers. Considering the sturdy financial footing of Bestway Cement, this investment represents not more than one percent of company's existing long-term investments. With regards to meeting the investment needs, sufficient cash is available on Bestway Cement's balance sheet to fulfil the investment funding requirement, thus warding off against burdening itself from additional debt.
In the non-life insurance sector, UBL Insurer holds a market share of two percent and stands as the tenth largest insurer (total 26 insurers) based on premiums written according to the latest statistics provided by Insurance Association of Pakistan (IAP).
UBL Insurers financial history shows that the last three years have been a turnaround phase for the company. Led by sharp growth in premiums coupled with improvement in claims, claims ratio eased to 61 percent mark in 2013, from as high as 88 percent in 2009. Furthermore, the company's losses underwent a reversal in 2011. Since then, the company has managed to pick up its profitability year after year. For Bestway then, it seems like a good time to acquire the stake.